Relating to local government taxes, budgets, and authority, by establishing property tax limitations and modifying provisions relating to the assessment and taxation of property, certain taxpayer notices, bond issuances, and councils of governments, and including applicability and retroactive applicability provisions

Note on Fiscal Estimates

Due to the complexity and interdependence of the Bill’s provisions, including multiple changes to the property tax base and levy structure, division-level estimates cannot be combined to produce a total fiscal impact. Therefore, the estimates below are provided independently and should not be summed to determine the overall fiscal impact, and each Division is modeled independently of the other Divisions.

The Department of Management (DOM) estimates the information technology (IT) costs to implement all Divisions of the Bill to range between $19,000 and $40,000.

Note on Property Taxes

All property tax rates used in this document are reflected as rates that are applied per $1,000 of taxed property value. Taxed property value is the value determined through the assessment process, adjusted (reduced) for any rollback for the property class, and after property tax exemptions have been applied.

Summary

House File 2745 is composed of 16 divisions that are related to property tax assessments, rates, credits, exemptions, budget processes and other related programs that do the following:

• Division I limits the growth of certain property tax levies for local governments to 102.0% of the prior year’s budget, with specified adjustments and exclusions.
• Division II modifies the assessment limitation for commercial and industrial property by expanding the portion of value subject to the residential rollback rate.
• Division III establishes a homestead property tax exemption equal to 10.0% of taxable value of the home, up to $25,000 per homestead.
• Division IV modifies the Secure an Advanced Vision for Education (SAVE) Fund Equity Transfer percentage and extends the Fund’s repeal to January 1, 2027.
• Division V requires county auditors to submit an annual report that includes parcel identification information.
• Division VI modifies provisions related to urban renewal areas and tax increment financing (TIF), including exempting certain levies, setting fixed durations to TIF Districts, and capping housing investment requirements.
• Division VII modifies provisions related to property assessments.
• Division VIII creates the Local Government Efficiency Grant Program and appropriates $10.0 million from the General Fund.
• Division IX creates the FirstHome Iowa Program and related fund to assist with first-time homeownership.
• Division X modifies provisions related to distorted market valuations.
• Division XI makes changes to local government property tax statements and procedures.
• Division XII modifies provisions related to the property tax treatment and exemption structure for data center property.
• Division XIV establishes a voter-approved emergency medical services (EMS) levy above the current maximum levy rate.
• Division XV establishes a Utility Replacement Tax Task Force.
• Division XVI establishes an unspent balance cap and allows schools to request a budget adjustment.

Division I — Property Tax Revenue Limitations — Bond Revenue Use Limitations

Description

Division I of the Bill does the following related to property tax revenue limitations:

• Disallows unassigned reserve funds identified within a government entity’s general fund from exceeding 35.0%, beginning in FY 2028. Establishes penalties for noncompliance.
• Repeals Iowa Code section 176A.8(13), which would disallow an agricultural extension to carry forward unexpended funds.
• Limits property tax revenues to 102.0% of the prior years’ revenues, excluding debt service and school districts, beginning in FY 2028.
• Includes replacement taxes detailed in Iowa Code chapters 437A and 437B in the 102.0% cap in the Bill and provides penalties for noncompliance.
• Restricts local government entities from issuing bonds or other debt for general operations beginning in FY 2027.
• Permits the DOM, in consultation with city and county finance committees, to adopt administrative rules to implement Section 7 of Division I of the Bill.

Background

Under current law, Iowa’s property tax system includes multiple layers of limitations and controls that collectively influence local government revenues and tax burdens. These include biannual equalization of assessed values, annual assessment limitations (rollback) by property class, statutory levy rate limits, the school aid formula, and the local government budget and certification process. Property owners also may appeal valuations through a structured protest and appeals process.

Iowa’s property tax cycle begins with the assessment of property values as of January 1, followed by assessment protests, equalization by the Department of Revenue, application of rollback to determine taxable values, and, finally, the adoption of local budgets and levy rates prior to the issuance of tax bills. Local government levy authority is further constrained by statutory rate limits and growth mechanisms. Recent legislation, including 2023 Iowa Acts, House File 718 (Property Tax, Assessments, and Board Ethics Act), and 2024 Iowa Acts, Senate File 2442 (Individual Income Tax Rate Act), modified these limitations by tying allowable levy growth to taxable valuation growth through tiered or inflation-adjusted mechanisms. In addition, school district funding operates under the school aid formula, which combines a uniform property tax levy of $5.40 per $1,000 of taxable valuation with State General Fund aid to meet the foundation level. This structure further integrates State and local funding decisions within the overall property tax system.

Assumptions

• The estimate projects district-level taxable valuation growth using a 12-year average of historical odd- and even-year growth rates by property class, beginning with assessment year (AY) 2024 values, used to account for large shifts in odd years during equalization. To moderate volatility in district-level growth across property classes, projected growth rates were bounded between the 15th and 80th percentiles to limit extreme fluctuations.
• Levy rates for all authorities are held constant at AY 2024 levels, and revenue growth is constrained through application of a 102.0% annual growth limitation on included levies at the district level. Any revenues that grow more than 102.0% compared to last year’s budgeted property tax revenues are artificially scaled back, representing the bulk of the decreased property taxes estimated by this Division.
• The estimate separates the base valuation from a new valuation using AY 2024 proportions, allowing revenue generated from new valuation to grow outside of the cap.
• Levies excluded from the growth limitation, including school district levies and debt service levies, are modeled under current law and added back after the cap is applied.
• This Fiscal Note assumes no behavioral response from local governments, assumes no changes in levy structure, and holds the relative composition of the tax base constant over time.
• Property tax revenue impacts are first seen in FY 2028.

Fiscal Impact

The analysis of this Division models the fiscal impact of this Division in isolation and does not account for interactions or combined effects with other divisions of the Bill. Figure 1 displays the estimated reduction in property tax revenue to local governments.

Figure 1 — Property Tax Revenue Reduction (in Millions)AY/FY

Current

Law

Revenue

Included

Revenue

Excluded

Revenue

Cap

Ceiling

Included

Allowed

Included

Revenue

Allowed

Total

Revenue

Local

Revenue

Reduction

2024/2026 7,812.1$ 0.0$ 0.0$ 0.0$ 0.0$ 0.0$ 0.0$ 2025/2027 8,234.1 0.0 0.0 0.0 0.0 0.0 0.0 2026/2028 8,519.7 3,977.8 4,541.9 3,948.5 3,866.5 8,408.3 -111.4 2027/2029 8,912.0 4,166.5 4,745.6 4,069.7 3,983.0 8,728.6 -183.4 2028/2030 9,231.0 4,317.7 4,913.3 4,195.6 4,104.7 9,018.0 -213.0 2029/2031 9,667.8 4,528.4 5,139.4 4,326.7 4,231.2 9,370.6 -297.2 2030/2032 10,024.9 4,698.6 5,326.3 4,463.9 4,363.8 9,690.1 -334.8 2031/2033 10,512.4 4,934.7 5,577.7 4,607.1 4,502.0 10,079.7 -432.7 Division II — Commercial and Industrial Property Assessment Limitations

Description

Division II of the Bill does the following related to commercial and industrial property assessment limitations:

• Amends the two-tier assessments of commercial and industrial properties and increases the residential rollback threshold from $150,000 to $350,000 of the assessed value.
• Eliminates the standing General Fund appropriation of $125.0 million for the backfill to local governments, effective in FY 2028.

The sections of Division II increasing the residential rollback threshold from $150,000 to $350,000 apply retroactively for assessment years beginning on or after January 1, 2026.

Background

The Two-Tier Assessment Limitation (TTAL) program, previously referred to as the Business Property Tax Credit (BPTC), began in FY 2024 with the passage of 2022 Iowa Acts, chapter 1061 (Department of Revenue Omnibus Act), which modified the assessment limitation applied to commercial and industrial property. Under TTAL, commercial and industrial property classes are no longer subject to a single uniform rollback percentage, and instead a two-tier structure is applied to the assessed value of each parcel pursuant to Iowa Code section 441.21. Under this system, the first $150,000 of a commercial or industrial property’s assessed value is subject to the lower residential rollback percentage, while the remaining value is subject to the commercial and industrial 90.0% rollback percentage. In practice, this results in a lower taxable value for a portion of each parcel. The rollback percentages are certified annually by the Department of Revenue and are applied by local governments to determine taxable valuation for property tax purposes.

The TTAL system replaced the BPTC, which provided a State-funded credit on a portion of commercial and industrial property taxes, by instead reducing taxable value directly through the assessment limitation structure. Since the implementation of TTAL, $125.0 million has been appropriated annually from the General Fund each year to the Department of Revenue for payments to local governments to replace property taxes lost due to the rollback. In FY 2025, the appropriation was able to fund 81.2% of the total requested $153.9 million in reimbursement requests.

Assumptions

• The Bill eliminates the $125.0 million State General Fund standing appropriation backfill associated with the prior credit structure. As a result, reductions in taxable valuations from the expanded assessment limitation are not offset by State payments and will result in a direct reduction in property tax revenues to local governments. The school foundation property tax $5.40 backfill associated with TIF does not apply to these valuation changes.
• The average taxable valuations of commercial/industrial properties that will benefit from the increased $350,000 threshold is unknown. The estimate assumes that 50.0% of the maximum additional benefit will be realized.
• The proportion of commercial and industrial property value affected by the expanded threshold remains constant over the projection period and grows at the same rate as total commercial and industrial taxable valuation.
• The proportion of commercial and industrial property value affected by the expanded threshold is assumed to remain constant over the projection period and grows annually at the statewide weighted average rate of commercial and industrial taxable valuation, using separate odd- and even-year growth rates. The weighted growth rates used in the estimate are approximately 3.84% in odd years and 0.48% in even years.
• The AY 2024 residential assessment limitation of 47.4316% and commercial/industrial limitation of 90.0% is assumed fixed for all future years.
• The AY 2023 total requested amount of $153.9 million is used as the baseline for projecting future amounts under both the $150,000 threshold under current law and the proposed $350,000 threshold. The maximum projected amount under the proposed $350,000 threshold is estimated by applying a proportional factor of 2.3 to current law projections, reflecting the increase in the maximum value eligible for the residential rollback.

Fiscal Impact

The analysis of this Division estimates the fiscal impact of this Division in isolation and does not account for interactions or combined effects with other divisions of the Bill. Figure 2 displays the estimated reduction in property tax revenue to local governments in addition to the elimination of the $125.0 million General Fund backfill appropriation. Figure 2 — Two-Tier Assessment Limitation Increase (in Millions) Division III — Homestead Property Tax Exemption

Description

Division III establishes a new homestead property tax exemption equal to the lesser of $25,000 or 10.0% of a residential property’s taxable value and excludes the exemption from school district levies.

Division III makes Iowa Code section 25B.7(1) on funding property tax credits and exemptions inapplicable to the Homestead Property Tax exemption changes in the Division. Division III applies retroactively to assessment years beginning on or after January 1, 2026.

Background

Iowa law provides several property tax credits and exemptions that apply to homestead properties. These programs reduce taxable valuation or tax liability for eligible homeowners and are administered through a combination of State-funded credits and local property tax adjustments. State-funded reductions in tax liability (credits) and reductions in taxable value (exemptions) are governed under Iowa Code chapter 425. Examples include:

• The Homestead Tax Credit, which reduces the taxable value of eligible owner-occupied residential property.Fiscal

Year

Minimium

Projection Under

$150,000

Threshold

Maximum

Projection Under

$350,000

Threshold

Estimated

Reduction Under

$350,000

Threshold

General Fund

Backfill

($5.40 levy)

Local Revenue

Reduction

2026 154.6$ 0.0$ 0.0$ 0.0$ 0.0$ 2027 160.5 0.0 0.0 0.0 0.0 2028 161.3 376.4 268.9 44.9 -224.0 2029 167.5 390.8 279.2 46.6 -232.6 2030 168.3 392.7 280.5 46.8 -233.7 2031 174.8 407.8 291.3 48.6 -242.7 2032 175.6 409.7 292.7 48.9 -243.8 2033 182.3 425.5 303.9 50.7 -253.2

• The Elderly and Disabled Tax Credit, which provides additional relief based on income eligibility.
• The Military Service Tax Exemption, which provides a partial exemption for qualifying veterans.
• The Disabled Veteran Homestead Credit, which provides a full exemption for certain qualifying veterans.

Assumptions

• In AY 2024, there were an estimated 743,790 homesteads in Iowa, and that number is assumed to remain constant for all future years. The applicable homesteads had a combined estimated assessed value of $263.379 billion.
• Assessed valuations are assumed to grow at a rate of 2.0% year over year.
• The AY 2024 residential assessment limitation of 47.4316% is assumed to remain constant for all future years.
• The assessed value of the average homestead was derived using the 2025 first quarter median home price published by the National Association of Realtors. The average consolidated tax rate of 32.42171 was adjusted to exclude the school district share of property taxes using a statewide average proportion of 40.13%, resulting in an effective non-school tax rate of 19.41088 for purposes of this exemption. This resulted in an average statewide property tax bill of $2,831 before any tax credits or other reductions were applied.
• The homestead exemption is calculated as 10.0% of taxable value up to a maximum of $25,000 per homestead.
• The fiscal impact of this Division will begin in FY 2028. Figure 3 below displays the average homestead property tax reduction using the above assumptions.
• Because Iowa Code section 25B.7(1) is made inapplicable under Division III, the school foundation property tax $5.40 backfill does not apply to these valuation changes. Figure 3 — Estimated Average Property Tax Reduction per

Homestead Exemption

Fiscal Impact

The analysis of this Division estimates the fiscal impact of this Division in isolation and does not account for interactions or combined effects with other divisions of the Bill. Figure 4 displays the estimated reduction in property tax revenue to local governments.

Figure 4 — New Homestead Revenue Impact (in Millions)FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 190.00$ 190.00$ 190.00$ 200.00$ 200.00$ 210.00$AY/FY

Assessed

Value

Taxable

Value

Homestead

Exempt Value

Local Revenue

Reduction

2024/2026 263,379$ 122,936.9$ 0.0$ 0.0$ 2025/2027 268,646.5 127,423.3 0.0 0.0 2026/2028 274,019.4 129,971.8 7,145.6 -138.7 2027/2029 279,499.8 132,571.2 7,288.5 -141.5 2028/2030 285,089.8 135,222.7 7,434.2 -144.3 2029/2031 290,791.6 137,927.1 7,582.9 -147.2 2030/2032 296,607.4 140,685.6 7,734.6 -150.1 2031/2033 302,539.6 143,499.4 7,889.3 -153.1 Division IV — Secure an Advanced Vision for Education Fund — Equity Transfer Percentage — Future Repeal

Description

Division IV extends the statewide sales tax rate of 6.0% and the SAVE Fund from a repeal date of January 1, 2051, to January 1, 2071, and allocates 30.0% of SAVE funds to property tax relief by FY 2035. The change will be gradually implemented to increase the share of the SAVE Fund that will be used for property tax relief. The Bill requires the Department of Management (DOM) to adjust or reconcile SAVE funds to be received by school districts in the fiscal year immediately following the fiscal year during which the revenues were collected.

Background

Secure an Advanced Vision for Education is a statewide 1-cent sales tax dedicated to K-12 infrastructure such as new school construction, major renovations, technology infrastructure, paying debt on eligible school bonds, and property tax relief. The Department of Education (DE) is required to issue an annual legislative report detailing the collection and use of SAVE funds.

Assumptions

• There is no additional administrative burden to the State for changes made in the Bill.
• Annual growth for school infrastructure sales tax will be as follows:
• FY 2027 = 2.00%
• FY 2028 = 2.90%
• FY 2029 = 2.90%
• FY 2030 = 3.20%
• FY 2031 = 3.50%
• FY 2032 = 2.45%
• FY 2033 = 2.45%
• FY 2034 = 2.45%
• FY 2035 = 2.45%

Fiscal Impact

Division IV is expected to have no fiscal impact to the State for administrative purposes. The Bill is expected to increase SAVE contributions to property tax relief by $20.9 million in FY 2027, increasing to $110.4 million in FY 2033. Figure 5 illustrates the estimated statewide impact of HF 2745 on property tax relief.

Figure 5 — SAVE Contribution Transfer Impact (in Millions) Division V — Property Parcel Information

Description

Division V of the Bill requires local governments to annually report parcel-level property data by January 1 of each year to the DOM.

Fiscal Impact

The fiscal impact of Division V is unknown.

Division VI — Urban Renewal

Description

Division VI of the Bill does the following related to urban renewal:

• Changes the definition of “low or moderate income families” to “low and moderate income families” (or LMI families) who earn no more than 80.0% of the median family income of the county or statewide median income as reported by the U.S. Department of Housing and Urban Development (HUD).
• All TIF districts created without an end date are restricted to collect only 60.0% of the available TIF revenues 20 years following the effective date of Division VI or 20 years from the calendar year that loans, advances, indebtedness, or bonds were first taken out, whichever is later. This limitation does not apply to community colleges.
• Limits all urban renewal revenues created after the passage of this Bill to 20 years or 23 years, for TIFs categorized as Economic Development/Slum and Blight, from the calendar date that loans, advances, debt, or bonds are first certified. Once a TIF reaches their limitation, the local ordinance automatically terminates and revenue associated with the urban renewal is no longer collected. This limitation does not apply to community colleges.
• Excludes school district foundation property taxes and EMS property tax levies from urban renewal capture.
• Changes urban renewal financial requirements for LMI family housing by lowering the population criteria of municipalities from 15,000 to 5,000, and updates required expenditures on LMI housing projects from 10.0% to the lesser of 20.0% of the project cost, or $350,000.